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A New Independence Day, Or a Day of a New Dependency?
For years people have used Brazil as an example of a country who is looking towards alternate energy solutions. After Monday, we are all left in wonder whether this is true. President Lula declared on Monday that it was the “New Independence Day” in Brazil because of new measures that will restructure the subsalt oil blocks in order for the state to gain more control of its oil industry.
This seems like a step back. Even President Obama, during his campaign, said that we, the United States, should look to Brazil as an alternate energy example. Should we be angry? Is there no paradigm country to look to now for alternate energy?
I actually believe that this is a much too simple statement. I believe the bottom line reason why Brazil has moved towards alternate energy is because: That was what they had, it was cheap and could be a way to even make money. Now that they have oil, they have another way to make money and “develop” as Lula said on Monday.
Today I started a class in Energy Security in the Western Hemisphere. For this class we read a really interesting article in the magazine Foreign Policy called, “Is a Green World a Safer World?” The article questions whether alternate energy is even the answer.
Is oil that bad? Or, is it our ways of life and wasteful thinking that should be changed?
Here is what the government is planing on doing:
- Initially, the government planned to evenly divide the income from subsalt areas amongst all the states in Brazil, however, the initiative died after President Luiz Inácio Lula da Silva with the governors of the three principal oil producing states, Rio de Janeiro, São Paulo, and Espírito Santo. The president agreed that these states will continue to receive royalties for the petroleum produced in their respective states.
- Although the production states will receive a higher distribution of the subsalt profits, all states should benefit from the production.
- Brazil will give already discovered areas between offshore subsalt blocks to Petrobras, the partially state-owned petroleum company. This transaction will occur without charge and will limit Petrobras to a volume of 5 billion barrels.
- Petrobras will be the principal operator of all the subsalt blocks. In the low-risk areas, Petrobras will be the sole owner and operator and will not hold auctions. In the other areas, Petrobras will own at least 30% of drilling and extracting rights, while the rest will be auctioned off by the government. Nothing will impede Petrobras from competing in these auctions, allowing the company to obtain a more than 30% of the drilling rights in these areas.
- The Brazilian government will create a new state-run business, Petrosal, which will represent the State in the administrative side of the subsalt reserves. Petrosal will have a seat and direct veto in the committee that determines all of the activities and business in the subsalt blocks. Petrosal’s corporate office will be in Brasília and a central office will be located in Rio de Janeiro.
- Petrobras will receive a US$50 billion dollars (around R$100 billion) increase in capital in order to pay for the newly acquired areas and increase the company’s investments. The minor Petrobras stockholders will be able to accompany this increase in capital.
- The government will create a social fund that should receive all, or at least a good part, of the subsalt income. This fund will finance costs to improve education and combat poverty. The fund will also invest in science, technology, environment and culture.
- In total, four projects were sent to Congress to be passed into law: 1) The creation of the new state company, Petrosal; 2) The creation of the Social Fund; 3) The capitalization of Petrobras; 4) The creation of a system to organize the allocation of production.
